Piramal, Oaktree bids conditional and not qualified; may delay DHFL resolution further: Kapil Wadhawan

“Even more worrisome are the various newspaper reports that suggest that both Oaktree and Piramal, which are the main contenders for DHFL, have made bids that are conditional and not qualified which may delay or defeat the resolution of DHFL further.”

Piramal group, the main contender for DHFL, which has put in the highest bid at Rs 38,250 crore has proposed a reverse merger of its flagship Company viz. Piramal Capital and Housing Finance Limited (PCHFL) with DHFL, according to the statement.

He said PCHFL itself had, just as DHFL, suffered immense liquidity crises in 2018, however, it managed to survive by borrowing funds from SBI, LIC, Canadian pension fund CDPQ, IFC, Union Bank of India, IndusInd Bank, Bank of Baroda etc.

Wadhawan stated that the asset quality of PCHFL has not been vetted to ascertain whether the merger of PCHFL with DHFL would be in the interest of entities.

“Piramal’s resolution plan is founded on the reverse merger occurring successfully to ensure the Rs. 10,000 crores of capital be infused into DHFL, which is essential for maintaining various regulatory ratios mandated by RBI apart from being required for the success of the resolution plan. It is uncertain whether the merger would take place and in any event the merger may entail considerable delay which would further delay and complicate the resolution of DHFL.”

“In fact, recent newspaper reports suggest that the lenders are also concerned about the merger and the fact that it operates virtually as a precondition to the Piramal’s resolution plan, even though it may not have been expressly stated to be so,” read the statement.

It stated there is no clarity as to how the resolution plan of Piramal will be implemented if the reverse merger were to fail.

“At the stage of merger, the approval of various creditors as also approval of regulatory authorities would be required all of which are uncertain and any of which can cause the resolution plan to fail.”

“Even so far as the resolution plan of Oaktree is concerned, Oaktree being a foreign fund is not entitled to hold equity beyond 49% in a Life Insurance Company. As DHFL indirectly holds 50% of Pramerica Life Insurance Limited, which is a Life Insurance company, consequently Oaktree is per se disqualified from bidding for DHFL.”

“Various solutions have been suggested by Oaktree to circumvent the disqualification including that it shall transfer the Life Insurance Business into an alternative investment fund. But all these suggestions are subject to regulatory and other approvals and it is uncertain whether Oaktree will be qualified eventually to take over DHFL.”

“In so far as Adani is concerned apart from having made a low bid of Rs.33,110 crore considering the massive debt of USD 30 billion it is carrying on its books, it would not be appropriate to give them charge of an NBFC and another debt of nearly USD 12 billion.”

Wadhawan said considering that the main three contenders have so many inherent uncertainties in the resolution plan made by them and there are high probabilities that even if their plans are approved such plans might fail, it is unclear why the settlement proposal of the promoter is not being considered.

According to the statement, Wadhawan has offered 100 percent principal repayment to all the lenders (offered to repay Rs.91,158 crore) as opposed to the next highest bid of Rs 38,250 crore.

“He has offered to repay 65,000 crore within seven years as opposed to Rs 38,000 crore reportedly payable in 10 years. He has offered a much higher interest rate than any of the other bidders during the interregnum.”

Kapil Wadhawan had been running DHFL since 2000 and until the IL&FS crises crippled the company in 2018.